The Fragile Truce between the US and China

It is Saturday, Dec. 1. While Donald Trump and the Chinese leader, Xi Jinping, agree to call a halt to their trade war for 90 days in Buenos Aires, 7,500 miles away in Canada, Meng (Sabrina) Wanzhou is being arrested. She is the chief financial officer and heiress to the founder of Huawei, one of the giants of the Chinese technology industry.

At one end of the continent, a truce between the two superpowers is reached. At the other, the ground is already being laid for a renewal of the conflict.

The markets immediately started to wobble after a first day of “celebration.” On Tuesday, Dec. 4, Wall Street fell more than 3 percent, its worst decline since October. This was attributed to confusion over the truce after Trump tweeted twice that Beijing had agreed to “reduce or remove” tariffs on cars manufactured in the U.S. and exported to China. The claim was not confirmed by the Chinese. Several hours later, Larry Kudlow, Trump’s economic adviser, added to the confusion when he tried to gloss over the subject while speaking with journalists. In the end, he admitted to not knowing anything about the truce, saying tariffs were not discussed at the Argentine dinner and suggesting the president’s tweet was merely expressing his wishes.

The fragile truce between the United States and China was weakened further by the fact that there was no joint communication after the meeting. Commitments and reassurances have also been vague, all of which is unconvincing to investors.

The arrest of the Chinese businesswoman dialed up hostility levels even further.

It is difficult to overstate the significance of the arrest of Huawei’s CFO. The daughter of the company’s founder, Sabrina Meng is one of the country’s most influential businesswomen. Canada, which has just agreed to a new tripartite trade deal with the U.S. and Mexico, is unwilling to take responsibility for the arrest, but is also keen not to upset its neighbor and ally. Prime Minister Justin Trudeau’s explanation of the unusual arrest on neutral Canadian territory smacked of not wanting to take responsibility: an international arrest warrant for “unspecified charges” was issued and processes for the extradition of the Chinese citizen will be opened.

For its part, the Chinese Embassy in Ottawa has forcefully spoken out against the arrest of a “Chinese citizen who has not violated any U.S. or Canadian law.” The embassy has asked the United States and Canada to review the charges and to release Meng as soon as possible. The United States is talking about the violation of sanctions against Iran in connection with the arrest. As Huawei is a Chinese company with operations in the U.S., it is subject to American jurisdiction and, by extension, also to sanctions decided on by the United States.

The charges against Huawei seem like a pretext for a game with much higher stakes. Huawei is the world’s second biggest company in the smartphone market. In some territories, such as India, it has overtaken Samsung, the market leader, in volume of telephones sold. It is also at the forefront of developing 5G wireless networks and artificial intelligence. In August, Trump issued a ban against the use of Huawei’s 5G devices within the Pentagon’s military networks due to fears they could be used for the purposes of spying. Since then, Huawei smartphones have disappeared from American retail chains such as Best Buy. After the U.S. executive order, other allies such as Australia and New Zealand have banned the use of Huawei 5G networks, with the U.K. also due to decide shortly. A technological battle is being fought within the larger trade cold war. Markets have started to move in the wake of all the uncertainty. At this time, the Argentine truce between the United States and China seems to be hanging by a thread.